This could push up insured losses from natural disasters from 2014-2019 to Rs 30,000 crore
Floods have ravaged parts of Assam, Kerala, Karnataka, Maharashtra, Madhya Pradesh and Odisha over the past few months. Almost 60-70 people are said to have lost their lives across the country in various flood-related incidents, apart from massive loss to property and vehicles. It is expected that this will lead to a rise in insured losses.
Initial estimates suggest that insurance claims could touch Rs 50-60 crore in the next few weeks. If the monsoon rains intensify, the situation could worsen. This could push up insured losses from natural disasters from 2014-2019 to Rs 30,000 crore.
Cyclone Fani that hit Odisha in April/May led to insurance losses of almost Rs 2,000 crore which causing a rise in underwriting losses for general insurance companies. This means the claims paid exceeded the premium collected. Similarly, the Kerala floods led to claims of Rs 1,400 crore for life and general insurers.
“We have already faced a hit in Q1. If the rain situation continues, the combined ratio will also suffer,” said the head of underwriting at a private general insurer.
During natural catastrophes, the insurance regulator mandates each company to have a single-point helpline to monitor claims. Further, the claims settlement process is also simplified for quick payment of the amount to the insured/kin.
Claims from global natural catastrophes in 2018 were pegged at $76 billion, according to the Swiss Re sigma report. The combined insurance losses from natural disasters in 2017 and 2018 were $219 billion, the highest-ever for a two-year period.
In India, the Mumbai floods of 2005 were one of the largest cases of insurance loss events. A Swiss Re sigma report said that in the event of torrential rainfall, rapid urbanisation reduces avenues for water discharge and can lead to heavy flooding. Such was the case in Mumbai in 2005, when flooding after heavy rains resulted in one of the largest insurance loss events ever experienced in India ($0.9 billion, according to sigma data).
In the last five years, losses due to catastrophes have led to insured losses of almost Rs 25,000 crore. This includes losses due to the Uttarakhand floods, cyclones Hudhud, Fani and Phailin, the Chennai and Kerala floods.
The share of uninsured catastrophe losses varies by region. A Swiss Re report said it was typically higher in developing countries where infrastructure construction and implementation of catastrophe risk mitigation measures did not keep pace with economic growth. However, there are areas of under-insurance in advanced countries too, even in those with known medium to high exposure to certain hazards.
Insurance companies have a natural catastrophe clause that covers damage to property or vehicles for these incidents. For death due to such an incident, a term insurance cover will provide the life insurance claim.
The centre fully funding this initiative is not a feasible idea. Having a catastrophe bond to fund the claims from such incidents has been a model followed in other markets, but not yet allowed in India. A natural catastrophe pool to fund major incidents was under discussion about three years back, but it hasn’t yet been implemented.With the rise in the number of natural catastrophes in the country, Insurance Regulatory and Development Authority of India (IRDAI) chairman Subhash C Khuntia said they are looking into the possibility of having a few pilot projects in vulnerable areas to offer property insurance.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.